The elevated mortgage rates, steep home prices, and declining rent costs familiar in today's housing market have made it less costly to rent than to buy a starter home in all but three of the largest metros in the U.S., according to the Realtor.com Monthly Rental Report. In August, the cost of buying a starter home in the top 50 metros was $1,111 (60.3%) higher than renting in those markets on average.
"Rents have registered steady declines for the past four months and, while they remain well above pre-pandemic levels, when you factor in the impact of record-high mortgage rates and high home prices, it's understandable that many would-be homebuyers are choosing to remain on the sidelines," said Danielle Hale, Chief Economist at Realtor.com. "The downward trend in rental prices reduces the sense of urgency, giving renters more time to save for a home. In the period ahead as rents soften, we expect more households will remain renters for longer."
Nationally, rents dropped for the fourth straight month, while homebuying costs increased.
Median rents for 0-2 bedroom units declined consistently year-over-year for the past four months which, when combined with mortgage rates hovering above 7% and a low enough supply to drive up prices despite subdued demand, tipped the scales further in favor of renting. In August, homeownership costs exceeded renters' monthly costs by nearly $300 compared with the start of the year.
- August marked the fourth month of year-over-year rent declines in a row for 0-2 bedroom properties, which overall are down -0.6% year-over-year. Rents dropped -0.7% for 2-bedrooms, -0.5% for 1-bedrooms, and -0.2% for studios.
- Specifically, the median asking rent in the 50 largest metros dipped to $1,752, down $7 from last month and down $25 from the peak in July 2022. However, median rents remain $336 (23.7%) higher than the same time in 2019, prior to the pandemic.
- In the majority of the largest U.S. metros, though, renting a starter home remains more affordable than buying one. During the past 12 months, with an average 30-year fixed mortgage rate jumping from 5.22% to 7.07%, the cost to buy a starter home in markets that favor renting climbed at an average rate of 21.4%, increasing from $2,500 to $2,959.
Renting beats homebuying in nearly all major metros, and the advantage is increasing.
In August, renting was more affordable than buying a starter home in 47 of the 50 largest metros, up from 45 during the same time last year. Declining rents and the increasing costs of buying a home contributed to the jump in savings from renting.
While skyrocketing mortgage rates pushed up the cost of taking on a mortgage, climbing home prices expanded the base of mortgages as well, making buying even less affordable compared to renting. The advantage of renting continues to grow in all rent-favoring markets.
In the top 10 metros that favor renting over buying, most of which have a higher concentration of tech workers and high earners, both the average cost to rent and to buy are higher than the national average.
Austin, Texas topped the list of markets that favor renting, where the monthly cost of buying a starter home was $3,946–136.3% more than the monthly rent–for a monthly savings of $2,276. Meanwhile, Baltimore and St. Louis flipped from buy-favoring to rent-favoring markets during the past 12 months.
- In August 2023, the monthly savings in rent-favoring markets were $483 higher compared to the prior year.
- The median asking rent declined -0.5% year-over-year in rent-favoring markets, a trend significantly different from 12 months ago. In these markets, the monthly cost of buying a starter home in August 2023 was $2,959, which is $1,183 or an average of 64.3% higher than the cost of renting. Comparatively, in August 2022 buying a starter home in rent-favoring markets cost an additional $700 (36.2%) more than renting.
- San Jose experienced the most substantial surge in savings when comparing renting and buying. In August 2023, renting a starter home in San Jose yielded monthly savings of $3,214, a significant increase from the $1,964 saved last year. Indianapolis however, saw the largest percentage increase in savings from renting. In August 2023, renting a starter home in Indianapolis would save renters $431 compared to buying, ten times the savings seen 12 months ago ($43).
In markets favoring homebuying, the advantage is shrinking—and fast.
In August 2023, only three of the top 50 U.S. metros favored buying starter homes rather than renting: Birmingham, AL, Memphis, TN, and Pittsburgh; however, the cost-benefits of buying have decreased since the same time last year.
- In buy-favoring markets, the monthly cost of buying a starter home was $29 cheaper on average, or -2.1% lower than the cost of renting, a significant decrease from the savings of $192 in the same time last year.
- In particular, the savings from buying a starter home instead of renting dropped from $434 to $43 in Memphis, $282 to $6 in Birmingham, and $139 to $39 in Pittsburgh over the past 12 months.
As the benefit of buying diminishes in these markets, prospective homebuyers will need to consider all trade offs when deciding whether to buy or continue renting. This is particularly important given that today's elevated mortgage rates and still-high home prices pose substantial challenges for would-be buyers.
"As we noted in our July Rental Trends report, seasonality and recent momentum in the rental market make it very unlikely the market will see a new peak rent in 2023," said Jiayi Xu, Economist at Realtor.com. "Still, rents remain well above pre-pandemic levels, contributing to ongoing affordability concerns for renters, regardless of whether they plan to rent or buy in the months ahead."
To read the full report, including more data, charts, and methodology, click here.